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Cover Stories Series 2012> Activating Private Capital> Archive
UPDATED: November 14, 2011 NO. 46 NOVEMBER 17, 2011
High Hopes on New Regulators
The new heads of China's financial regulatory bodies face obstacles as they try to maintain financial stability and deepen reform

EXPECTING THE BEST: Traders work at the Shanghai Stock Exchange (PEI XIN)

On October 29, China changed the top positions at its three financial regulatory bodies—the China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC) and China Insurance Regulatory Commission (CIRC). The mix up will help strengthen financial regulation. Industrial insiders say this indicates maintaining financial stability will become the focus of the Chinese financial industry, instead of the market-oriented and international progress in the past few years.

Shang Fulin, former CSRC Chairman, was appointed CBRC Chairman; Guo Shuqing, former Board Chairman of China Construction Bank, was appointed CSRC Chairman; and Xiang Junbo, former Board Chairman of Agricultural Bank of China, was appointed CIRC Chairman. Liu Mingkang, former CBRC Chairman, and Wu Dingfu, former CIRC Chairman retired from their former positions.

Once acting as Vice Governor of the People's Bank of China and President of the Agricultural Bank of China, Shang's experience with credit management, risk control and banking management make him a perfect fit for his new role. Serving as CSRC Chairman, he helped solve a number of problems such as split share structure reform, the launch of the growth enterprise board and the launch of stock index futures. Yang Zaiping, Vice Chairman of the China Banking Association, said Shang was pragmatic and suitable to the banking industry which is desperately in need of more risk oversight.

With years of banking experience and international vision, Guo is expected to make further reforms in the initial public offering (IPO) mechanism, trading mechanism, effective regulation and information disclosure on the position of CSRC Chairman, said Lu Suiqi, Vice Director of the Department of Finance of School of Economics of Peking University.

Xiang, who once worked in the National Audit Office, is considered impartial. Lu said Xiang is experienced in risk control, which is beneficial to the insurance industry as it needs to strengthen regulation in an effort to prevent risk.

According to Lu, Chinese economic development currently faces complicated circumstances at home and abroad. Both the global financial crisis and the European sovereignty debt crisis have had significant influence on the Chinese economy. The three new chairmen face various challenges, such as maintaining stability of the financial system, the yuan's appreciation, local government debt and IPO reform. However, with the domestic real estate market headed in a downward trajectory, maintaining financial stability will play an active role in stabilizing the economy.


On the evening of November 2, CSRC's website issued the results of its Public Offering Review Committee. Unexpectedly, among the four companies discussed by the committee, only one application passed, which is considered the "strictest" review.

People unavoidably link this result with the appointment of Guo as new CSRC Chairman. Industrial insiders think this indicates there will be some changes in the CSRC's IPO mechanism. Circumstances the investors have condemned, such as loose IPO review and over-financing, might change.

Guo is the first of the three new chairmen providing a window into the changes in the foreseeable future. Hu Jian, Director of the China Center for Financial Research of Peking University, said whether the Chinese stock market can correct its "obsession with financing while ignoring investment" will be the biggest challenge for the new CSRC chairman.

According to Hu, the major task Guo faces is continuing to push forward reform of China's capital market, including launch of the "international enterprise board," establishment of over-the-counter markets, and risk control of short-term capital flow during the liberalization process of China's capital accounts.

People, however, are more interested in the new policies Shang will formulate. Since China will carry out the Basel New Capital Accord on capital requirements of banks in 2012, the CBRC will adopt four tools of banking regulation: capital adequacy ratio, provision rate, leverage ratio and liquidity. Extending this set of advanced regulation indicators in the banking sector will be the first task for Shang at his new post.

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